Puerto Rico’s governor issues “distress call” to Congress

However, officials argued that the failure of that payment did not represent a default because it involves moral obligation bonds, which means there is no legal requirement to repay them.

“Today’s debt service payments reflect our commitment to honor our obligations notwithstanding the extreme fiscal challenges we face in an effort to facilitate a voluntary restructuring process with our creditors”, said the bank’s president, Melba Acosta Febo.

But it was unclear how long the payments would continue or whether the Commonwealth would meet other looming deadlines between now and January 1. A default could trigger lawsuits, further spook investors and undermine the island’s efforts to climb out of $72 billion in debt.

It warned of problems ahead as it will have to “claw back revenues pledged to certain bonds issued in order to maintain public services”, Governor Alejandro Garcia Padilla told the U.S. Senate Judiciary Committee. Daniel Hanson, a Height Securities analyst closely following Puerto Rico, said in a November 25 note that a default could put GDB into receivership, which would “almost certainly result…in a stay” on its ability to move cash and, in turn, on the government’s ability to support operations.

El gobernador de Puerto Rico Alejandro Javier García Padilla atestigua ante el Comité de Asuntos Jurídicos del Senado de Estados Unidos sobre los problemas fiscales de la isla, el 1 de diciembre del 2015.

Meanwhile, a Senate committee was to hold another hearing on Puerto Rico’s crisis. “Moreover, the governor’s executive order to redirect revenues allocated to certain non-general obligation bonds underscores the severity of the commonwealth’s liquidity issues”.

“We have taken this hard step in the hope that congress will act soon”, Gov. Padilla said. He asked lawmakers to enact legislation to give the territory more equitable treatment under federal programs and authorize Puerto Rico to restructure a meaningful portion of its debt. “These emergency measures are unsustainable”. He admitted essentially that Puerto Rico is out of cash.

The country is in the midst of a financial crisis as record numbers of Puerto Ricans are moving to the U.S.

According to the Administrative Office of the U.S. Courts, Chapter 9 bankruptcy provides “a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts”.

He also noted that many Americans, including 16,000 people in his home state, have invested in Puerto Rican debt through index funds and could be harmed by a bankruptcy.